Starbucks announced on Tuesday that CEO Laxman Narasimhan has been Chipotle CEO Brian Niccol sent the stock soaring 24.5%, giving it its best day ever.
Chipotle shares fell over 10% when it was announced that Niccol would leave the burrito chain after a successful tenure.
Narasimhan's resignation is effective immediately. Starbucks CFO Rachel Ruggeri will lead the business on an interim basis until September 9, when Niccol officially takes over the top job.
Narasimhan took over as CEO in March 2023. The coffee giant's performance has been sluggish this year, due to weak sales in the U.S. and China, its two biggest markets. In the last quarter, Starbucks reported a 3% decline in comparable-store sales.
Pressure was mounting on the company as it struggled to attract customers to its stores. Former CEO Howard Schultz, who had personally handpicked Narasimhan as his successor, had written an open letter in May addressing the company's problems and offering advice, but never mentioning Narasimhan by name. Activist investor Elliott Management had bought a stake in the company in recent weeks.
“Elliott has been communicating with Starbucks' board over the past two months about our views on the company's most important issues, and we view today's announcement as a transformative step forward for the company,” Elliott managing partner Jesse Cohn and partner Marc Steinberg said in a joint statement. “We welcome Brian Niccol's appointment and look forward to continuing our collaboration with the board as it works to realize Starbucks' full potential.”
Schultz, now honorary chairman of the company, also supported Niccol as the new CEO.
“I believe he is the leader Starbucks needs at a pivotal moment in its history. He has my respect and full support,” Schultz said in a statement.
Fellow activist Starboard Value is also said to have secured a position in the coffee chain. In a statement on Tuesday, Jeff Smith of Starboard said: “Brian is uniquely qualified to become the next CEO of Starbucks. We believe this represents a very positive outcome for partners, shareholders and customers.”
Starbucks' share price has fallen 21 percent during Narasimhan's tenure (not including Tuesday's move).
Before joining Starbucks, Narasimhan was CEO of Reckitt, which owns brands such as Lysol and Mucinex. After being named the new CEO, he spent months learning the Starbucks business, including training as a barista.
Niccol has been CEO of Chipotle since 2018 and previously led Yum Brands' Taco Bell. During his time at Chipotle, shares rose 773%. As CEO of Chipotle, he helped the chain recover from its food scandal and led its restaurants through the pandemic. While other restaurants have reported a sharp decline in consumer spending in recent quarters, Chipotle has bucked the trend and seen an increase in customer traffic and sales.
Mellody Hobson, who resigned as Starbucks' chief executive officer on Tuesday to become lead independent director as part of the company's executive shakeup, said the board had been considering replacing Narasimhan for several months.
“Our board started talking about running the company a few months ago, and I made an offer to Brian through someone, and he took the call,” Hobson said Tuesday on CNBC's “Squawk Box.” “We thought we had an opportunity to partner with one of the biggest names in the industry, someone whose track record is clearly proven, not only by the spectacular results he's achieved at Chipotle, but before that at Pizza Hut and Taco Bell. He knows this industry, and we thought he would be the right leader for this moment.”
Hobson acknowledged that Narasimhan had some difficulties joining Starbucks without restaurant experience, but added that he has helped reduce turnover and resolve supply chain issues. However, it appears the board has more confidence that Niccol can quickly get the business back on track.
“But with Brian, we saw someone who, quite frankly, had been through it all – all kinds of market environments, all kinds of cycles. I remember him saying to me in the conversation, 'I know what to do,'” Hobson said.
One of Chipotle's strengths under Niccol has been its app, which has contributed to its strong performance in recent quarters. Starbucks' app has been one of the scapegoats for the poor performance. Schultz and other Starbucks critics have pointed to the oversupply of mobile ordering, which slows down service and detracts from the customer experience.
Chipotle, on the other hand, has added a second production line to its restaurants specifically for mobile ordering to keep up with digital demand. The burrito chain has set up locations with “Chipotlanes” reserved for digital order pickup.
Narasimhan's surprise ouster also suggests that Starbucks' board is not interested in a deal with activist investors. When news of Elliott's involvement in Starbucks first broke in July, the hedge fund offered Starbucks' board a settlement that would protect Narasimhan's job, CNBC previously reported. The board did not inform Elliott in advance of the leadership shakeup, Hobson said Tuesday.
Starbucks' board was initially unresponsive and did not initially address Elliott, partly because of Schultz's continued influence. Elliott has amassed a stake worth as much as $2 billion.
However, CNBC previously reported that the two sides met just last week to discuss a settlement offer.
— CNBC's Robert Hum contributed to this story.
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